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Time-consistent resource management with regime shifts

Maria Arvaniti (), Chandra K. Krishnamurthy () and Anne-Sophie Crépin ()
Additional contact information
Maria Arvaniti: Chair of Economics/Resource Economics, ETH, Zurich and Center for Environmental and Resource Economics (CERE), Umea, Sweden.
Chandra K. Krishnamurthy: Beijer Institute for Ecological Economics, The Royal Swedish Academy of Sciences, Stockholm, Department of Forest Economics, Swedish Agricultural University, SLU, Umea and Center for Environmental and Resource Economics (CERE), Umea, Sweden.
Anne-Sophie Crépin: Beijer Institute for Ecological Economics, The Royal Swedish Academy of Sciences, Stockholm and Stockholm Resilience Centre, Stockholm University, Stockholm.

No 19/329, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We investigate how a resource user who is present-biased manages a renewable resource stock with variable growth that could undergo a reversible regime shift (an abrupt, persistent change in structure and function of the ecosystem supplying the resource). In a discrete-time quasihyperbolic discounting framework with no commitment device, and using only generic utility functions and stock transition with regime shifts, we show that there is a unique, time-consistent stationary Markov-Nash equilibrium extraction policy. Further, we find that the optimal extraction policy is increasing in the resource stock and in the degree of present bias. Overall, our results suggest that for characteristics of ecosystems commonly considered in the literature, presentbiased resource users will increase extraction when faced with regime shifts.

Keywords: Renewable resources; Regime shifts; Hyperbolic Discounting; Present bias; Uncertainty; Markov Equilibrium (search for similar items in EconPapers)
JEL-codes: Q20 C61 C73 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2019-12
New Economics Papers: this item is included in nep-env, nep-gro, nep-gth, nep-ore and nep-upt
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